With the reduction of electricity demand, closure of coal plants and more private-sector involvement peers and invite scrutiny to help us further
improve. OPG welcomes the Auditor Gen-eral’s audit as an opportunity to strengthen our policies and implement recommended improvements.
To enable OPG to continue to be the lowest-cost generator of electricity for Ontarians, a multi-year Business Transformation initiative was launched in 2010, with the specific object-ives of reducing labour costs and creating a sustainable cost structure by implementing over 120 key improvement initiatives. OPG continues to moderate consumer electricity prices, as it currently produces 60% of Ontario’s electricity at an average price that is 45% below the aver-age price received by all other electricity gener-ators in Ontario.
Our Business Transformation successes to date include:
•
headcount reductions of 1,350 from January 2011 to August 2013 (a further reduction of 150 since April 2013), with a target of 2,000 over the 2011–15 period;•
a forecast productivity (production/head-count) improvement of 11% over 2011–15;•
a significant decrease in the overall manage-and ment compensation, and employee business travel and expenses, since 2008.A review of OPG’s cost-saving opportunities conducted by a consulting firm concluded that
“OPG has employed a systematic and structured approach to developing a company-wide trans-formation plan.”
The Auditor General conducted an employee survey and noted that the major-ity of the responses were favourable with some exceptions, recognizing that the survey was conducted during a period of significant reorganization when employees were experien-cing uncertainty and stress.
We acknowledge that the findings of the Auditor General demonstrate a need to improve
diligence and further tighten controls in some areas of our company and our culture. OPG is committed to taking actions that will strengthen and further ensure that its human resources practices are managed with due regard for economy and efficiency, and in accordance with applicable legal requirements. OPG has a Code of Business Conduct policy and will follow up on any exceptions identified in the report. OPG will report to the Office of the Auditor General the actions taken to address the report’s recommen-dations, as we did with respect to the Auditor General’s 2006 audit of OPG’s Acquisition of Goods and Services.
OPG will continue to pursue its Business Transformation initiatives to deliver value to its shareholder and Ontario ratepayers.
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in new power generation, the amount of electricity generated by OPG has been decreasing steadily. The decline has been sharpest over the past four years, dropping 22%, or from 108 terawatt hours in 2008 to 84 terawatt hours in 2012. Over the same period of time, the number of staff at OPG has decreased by 13%, from about 12,800 employees in 2008 to about 11,100 in 2012 (see Figure 2).
OPG’s projections show that the amount of elec-tricity it needs to produce will continue to decrease (see Figure 3). Therefore, the number of staff needed to operate, maintain and support its busi-ness activities is expected to drop significantly from 2013 to 2025—by close to 50%. As a result, OPG will need only about 5,400–7,000 staff by 2025. In response to these projections, OPG has initiated a Business Transformation project that is expected to reduce its staffing levels through organizational restructuring over a five-year period (2011–15) and save about $700 million. OPG’s target is to reduce the number of its staff by 2,000, going from 11,640 in January 2011 to 9,640 by December 2015.
At the end of our audit fieldwork in April 2013, OPG had about 10,400 staff—a reduction of about 1,200 since January 2011. OPG projected that at its current rate of reducing staff it would meet its staff
Staffing levels Electricity generation
Number of Staff Electricity Generation (TWh)
2003
Figure 2: Electricity Generation and Staffing Levels* at OPG, 2003–2012
Source of data: Ontario Power Generation
* These numbers represent year-end staffing levels. They include regular staff and non-regular (temporary and contract) staff but exclude nuclear security staff for reasons of confidentiality.
reduction target by the end of 2015. Beyond 2015, OPG plans to make further organizational changes and assess whether it needs to reduce staffing levels by a further 500 employees as part of its 2016 busi-ness planning.
To avoid having to offer staff costly severance packages, the reductions are to take place through attrition (gradually reducing staff through retire-ment or resignation) and redeployretire-ment (relocating staff to areas where they are required) rather than layoffs. OPG informed us that it decided not to lay off staff en masse because a large number of staff are eligible to retire between 2011 and 2015 and because layoffs would pose difficulties in a unionized environment. For example, the collective agreements in place not only give first refusal for voluntary job termination by seniority, they also provide a displacement right that allows a senior staff member to take over the job of a junior staff member instead of being laid off. If unionized staff exercised those rights, OPG would bear severance costs for junior staff as well as relocation and retraining costs for senior staff. In addition, with many people eligible to retire, staff might stay to take advantage of severance packages equivalent to a maximum of 24 months’ salary in the event of a layoff announcement. This would curtail the rate of staff leaving through attrition.
OPG told us that to achieve its staff reduc-tion target and sustain its operareduc-tions with fewer staff, it has introduced 120 initiatives to improve efficiency and eliminate unnecessary work. OPG also informed us that there is no direct correlation between specific initiatives and attrition—the pos-itions vacated will not match up exactly to the areas in which work has been eliminated.
Although OPG informed us that staff who leave through attrition do not receive packages, we noted that its staff reduction in recent years has still cost a significant amount. There has been a fourfold increase in total severance and termination costs (from about $4 million in 2009 to about $17 million in 2012). The two key components of these costs are retirement bonuses (equivalent to one month
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of base pay for unionized staff and three months of base pay for non-unionized staff) and severance pay, which employees negotiate with management along with input from the legal department. In addition, under the Pension Benefits Act, employees can choose to receive their pensions in one lump sum as long as they are eligible for early retirement or they resign before age 55. Our review noted that some employees who received lump-sum payouts were rehired by OPG shortly after they retired or resigned (see the section on Rehiring Former Employees as Temporary or Contract Staff).
Respondents to our employee engagement survey generally felt the intention of Business Transformation was valid but raised some concerns about its execution, for example:
•
Business Transformation came too late—it should have started much sooner for the financial health of OPG.•
It has been under way for two years but lim-ited practical changes have been made.•
It has put too much focus on staff reduction and not paid enough attention to developing a succession plan, deploying the right people to the right places and reducing workloads.•
The collective agreements and the “culture of entitlement” among staff have restricted OPG from making many changes through Business Transformation.•
There was no consultation to obtain input from all staff before Business Transformation was rolled out, and there has been a lack of Base scenario: staffing levelsLow scenario: electricity generation
Number of Staff Electricity Generation (TWh)
0 10 20 30 40 50 60 70 80 90 100
0 2,000 4,000 6,000 8,000 10,000 12,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Low scenario: staffing levels
Base scenario: electricity generation
Figure 3: Projected Electricity Generation* and OPG Staffing Levels, 2013–2025
Source of data: Ontario Power Generation
* Projections were prepared by OPG at the end of 2010. Both scenarios assume that all coal production will cease by 2014, that the Darlington refurbishment will begin in 2016 and that hydroelectric projects will proceed as planned. Variations between the scenarios relate to the timing of the nuclear new build, the length of time the Pickering nuclear facility will remain in operation, and the number of thermal units being converted to biomass or gas.
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meaningful, informative and effective com-munication to employees about Business Transformation since rollout.